Tuesday, February 6, 2018

Not An Economic Phenomenon, Not At All Unprecedented Even During The Current Bull Market, And, Again, Likely Not Over Just Yet

Along with our investment in the Bloomberg Terminal (considered the most robust data source for the investment industry), we've found our relationship with premium research provider Bespoke Investment Group to be most valuable over the years.As usual, Bespoke's deep dive into the data and into history brings important insights to light. In yesterday evening's analysis they stress, as we have, that "economic pessimism is not behind the selloff." Which is good news because bear markets are generally things of recessions. They state that "for volatility to remain at these levels, we need sustained equity moves of 2-3% or more. Without a larger economic catalyst, that's simply not realistic." We agree there as well.While the volatility of the past week feels so foreign, Bespoke points out that there have been four prior instances where the S&P fell at least 7% in a 7 trading day span during the current bull market. Here they chart how things played out each time, along with the current experience (red line):

Note where the red line ends. Thus, Bespoke points out -- as we have as well --that the history of such pullbacks during the present bull run suggests that the market may have a bit more work to do on the downside:

"If
historical precedent is any guide, expect stocks to bounce, stabilize, make a marginal new low, and
then finally stabilize."